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Sunday, 14 December 2014

Indonesia: Govt to issue Rp 7.1 trillion project-based ‘sukuk’

The government, via the Finance Ministry, plans to issue Rp 7.14 trillion (US$570.9 million) worth of project-based sukuk (Islamic bonds) next year to finance the development of three infrastructure programs as well as trigger the growth of the debt paper market.

The amount of issuance for the sukuk will be allocated in the 2015 revised state budget as part of the state’s financing, according to Suminto, director of Islamic bonds at the ministry’s debt management office.

The government plans to discuss the 2015 revised state budget earlier next year with the House of Representatives, which will change the previously approved Rp 2,039.5 trillion in the 2015 state budget.

Suminto said infrastructure projects would be used to finance the continuation of the so-called “double-double track” railway developments of Manggarai-Jatinegara in Jakarta and Jatinegara-Bekasi, the construction of a haj boarding house in Medan, North Sumatra, as well as road widening in eastern Indonesia.

“The haj boarding house construction is a project under the supervision of the Religious Affairs Ministry, while the Transportation Ministry is supervising the railway projects and the Public Works and Public Housing Ministry is covering infrastructure plans in eastern Indonesia,” he said in Jakarta recently.

Suminto acknowledged the amount was rather small for a number of infrastructure projects due to their construction sizes as planned by the National Development Planning Board (Bappenas).

However, Suminto said the government had yet to decide the sukuk maturity and coupon rates.

Next year’s total revised amount of issuance is higher than the previous plan of Rp 6.9 trillion stated in the 2015 state budget.

In February, the government issued Rp 1.57 trillion in project-based sukuk to finance the development of double-track railways on the second section of the Cirebon-Kroya route in West Java and from Manggarai, Jakarta and Bekasi, West Java as well as the revitalization of haj boarding houses.

The sukuk, which had a maturity of 10 years and a coupon rate of 9 percent, was part of the government’s sukuk issuance target for this year, worth Rp 60.37 trillion.

According to the ministry’s data, the total outstanding sukuk reached Rp 205.4 trillion between 2008 until Nov. 18 this year. As many as 83.4 percent of the amount is tradeable, while the remaining 16.6 percent is non-tradeable.

Sukuk comply with Islamic principles. Bondholders have a share in the ownership of tangible assets that act as collateral. Different from conventional bonds, which do not offer ownership in certain collateral, sukuk offer bondholders profits from interest rates paid by issuers.

Indonesia continues to lag in sukuk market development, with government sukuk only accounting for 9.2 percent of total bonds issued by the Finance Ministry this year, data from the Financial Services Authority (OJK) shows.

Suminto said the government would always support the development of the sharia financial market, of which sukuk was a part.

“The development of sukuk will always be in parallel with the whole sharia industry in this country, including in the banking, insurance and mutual fund sectors,” he said.

Indonesian Government Bond Traders Association (Himdasun) chairman Sarwadi said the group saw that the level of liquidity for sukuk in Indonesia was lower than conventional levels, especially for maturities above three years, due to the minimum volume in the domestic market.